UNC Kenan-Flagler Business School
CASE STUDY
PUMA:
Leading the
Pack with an
Environmental
Profit and Loss
Statement
More Accounting?
“Why would you go through the trouble of creating an entirely new
system of accounting when it’s not required and no one else is doing
it?” This was just one of the many questions Puma CEO Jochen Zeitz
received since publishing the first “environmental profit and loss
statement.” As the youngest person to become CEO of a public
company in Germany, this wasn’t the first time did something others
question. The more relevant questions to Zeitz, however, were “How
to make the most of the information “ and “What next?”
Introduction
In 1924, brothers Rudolf and Adolf Dassler founded a shoe factory in
Herzogenaurach, Germany. They quickly gained fame when their
shoes were used by Olympic athletes who not only won medals, but
broke records.1 After a dispute, however, the brothers went separate
A TEACHING CASE FROM
THE
UNIVERSITY OF
NORTH CAROLINA’S
KENAN-FLAGLER BUSINESS
SCHOOL
ways, and each formed his own shoe company. Adolf created a
company known as Adidas;2 and in 1948, Rudolf started Puma
Schuhfabrik Rudolf Dassler. Since its inception, Puma has been
associated with great feats of athleticism and innovation. In the
1
"About Puma." About Puma History. Puma, n.d. Web. 25 May 2014. <http://about.puma.com/category/company/history/>.
2
Carbone, Nick. "Top 10 Family Feuds." Time. Time Inc., 23 Aug. 2011. Web. 27 May 2014.
<http://content.time.com/time/specials/packages/article/0%2C28804%2C2089859_2089888_2089889%2C00.html>.
©2014 Center for Sustainable Enterprise, Kenan-Flagler Business School, University of North Carolina at Chapel Hill. This case was written by
undergraduate student Nikita Uday Godbole under the supervision of Dr. Carol Hee with support from a grant from the European Union. This
case is intended to serve as a basis for class discussion, rather than to illustrate the effective or ineffective handling of an administrative situation.
No part of this may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form by any means without
permission.
Puma’s Environmental Profit and Loss Statement
beginning, Puma specialized in football boots (soccer cleats), helping to contribute to their
popularity in Europe; but over the years they have also become a notable contender in the
sports of track and field, tennis, and motor racing.
Jochen Zeitz was appointed as the CEO of Puma in 1993. Determined to have an
impact at Puma, Zeitz transformed the company from a low price brand to one of the top 3
sporting goods brands.1 Part of this was accomplished by expanding their product line
from athletic footwear to include footwear designed with both functionality and fashion in
mind. Today, Puma is known as a company specializing in footwear, apparel, and
accessories.3 In 2007, PPR (now known as Kering) acquired more than 60% of Puma’s
shares.1 This acquisition put Puma in a strategic position, by first preventing Puma from
being bought out by Nike, as many speculated might happen,4 and by putting it in Kering’s
portfolio, with other brands such as Volcom, Gucci, and Yves Saint Laurent.5
Puma has the highest sales volume in Europe, the Middle East, and Africa, followed
by the Americas and then Asia/Pacific.6 Their main competitors are Nike and Adidas.7
Since the footwear market is mature, the competition in the industry is high.8 With such
high levels of competition, Puma needed a way to differentiate their company from the rest,
and Zeitz found a way to do so by creating the first environmental profit and loss
statement.
"Puma’s Environmental Profit and Loss Account for the Year Ended 31 December 2010." Puma’s Environmental Profit
and Loss (n.d.): n. pag. Puma. Web. 26 May 2014. <http://about.puma.com/wpcontent/themes/aboutPuma_theme/financial-report/pdf/EPL080212final.pdf>.
3
4
Olson, Parmy. "PPR Purrs At Puma." Forbes. Forbes Magazine, 10 Apr. 2007. Web. 30 May 2014. <http://www.forbes.com/2007/04/10/pprpuma-update-markets-equity-cx_po_0410markets14.html>.
5
"Brands." Kering. N.p., n.d. Web. 30 May 2014. <http://www.kering.com/en/brands>.
"Puma’s First Quarter Results in Line with Guidance." (2014): n. pag. Puma. Web. 28 May 2014.
<http://about.puma.com/wp-content/themes/aboutPuma_theme/media/pdf/2014/press_release_2014_Q1_en.pdf>.
6
7
"Major Companies." IBIS World, n.d. Web. 28 May 2014.
<http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=969>.
8
"Competitive Landscape." IBIS World, n.d. Web. 28 May 2014.
<http%3A%2F%2Fclients1.ibisworld.com%2Freports%2Fus%2Findustry%2Fcompetitivelandscape.aspx%3Fentid%3D96
9>.
2
Puma’s Environmental Profit and Loss Statement
Environmental Sustainability Leadership at Puma
In 2009, Puma introduced PumaVision, a program for corporate social responsibility.
They began with sustainable packaging and distribution through their “Clever Little Bag”
which replaces the typical cardboard shoebox (Exhibit 1), but their efforts went on to
encompass sustainability with regards to social issues, the environment, industry and
customers.1
In order to differentiate Puma from other similar businesses, Zeitz focused on
making Puma a leader in environmentally sustainability. Puma’s first step was preformed
a life cycle assessment (LCA). This is a “cradle-to-grave” approach, which involves
tracking all stages of product development to find the environmental impact created by
each step (Exhibit 2).9 In addition to identifying the causes of the environmental impacts,
LCA’s allow managers to see which impacts are the largest, most harmful, most costly,
most under public scrutiny, most likely to be regulated, easiest to minimize, and have the
best ROI. This data can inform process and design changes. Knowing actual numbers and
patterns gives decision makers accurate data, which they can use to find new opportunities
to create products and develop a competitive advantage.10
For example, Timberland, a company that manufactures shoes, conducted an LCA
and found that most of their emissions came from the cattle that provided the leather for
their boots.10 The fact that emissions from the cattle were the greatest contributor to
environmental impact reaffirms the importance of conducting the LCA. Without this
systemic approach, looking at raw materials further down the value chain could easily be
overlooked when trying to determine the greatest sources of environmental impact. Using
this information, Timberland was able to reduce the amount of leather used in their
production, which helped to shrink the emissions far more than if they were to focus on
another process that produced less emissions.11
The full scope of the LCA is limited, however, in that it often is difficult to find a
9
Scientific Applications International Corporation (SAIC). Life Cycle Assessment: Principles and Practice. Cincinnati: EPA, May 2006. PDF.
10
Esty, Daniel C., and Andrew S. Winston. Green to Gold: How Smart Companies Use Environmental Strategy to
Innovate, Create Value, and Build Competitive Advantage. New Haven: Yale UP, 2006. Print.
3
Puma’s Environmental Profit and Loss Statement
clear “winning” cause of the environmental damage, setting boundaries for what to
measure can be challenging to determine, data collection can be difficult and costly, and
LCA’s do not account for economic or social aspects of cost.10
While LCA’s can be extremely beneficial in trying to reduce the environmental
impact of a company, in 2011, Puma’s CEO Jochen Zeitz decided to take the LCA one step
further and create the first Environmental Profit & Loss Statement (E P&L). This
measurement puts Puma’s environmental impact from cradle to grave in monetary terms.
Specifically, they investigated “the environmental impacts caused by greenhouse gas
(GHG) emissions, waste and air pollution, as well as the use of natural resources such as
water and land along the entire value chain, from the generation of raw materials and
production processes to the consumer phase where the product is used, washed, dried,
ironed and ultimately discarded.”11
By quantifying the amount of impact created by their operations and putting these
into monetary terms, they could find out where they needed to limit or modify their
processes to reduce environmental impact and they could compare the “costs” of these
impacts to numbers traditionally reported in financial statements.12 In addition, by
examining the entire supply chain, they could look to see which tier of the supply chain
produces the most environmental impact and could then potentially work with this
supplier to increase efficiency. Finally, this tool helps to educate the public about their
purchase decisions in terms that are more easily understood than other measures of
environmental impact such as tons of carbon dioxide.
Results of the E P&L
Puma’s E P&L (Exhibit 3) showed an environmental impact of € 145 million from
greenhouse gas emissions, water use, land use, air pollution, and waste. 13 In the same year,
Puma reported € 2706.4 in total sales and net earnings of € 202.2 (Exhibit 4). The greatest
impacts (33% or EUR 47m) came from water use and GHG emissions. The second largest
11
Mattison, Richard. "The True Cost of Clothing." GreenBiz.com. N.p., 13 Dec. 2012. Web. 17 July 2014.
<http://www.greenbiz.com/blog/2012/12/13/true-cost-clothing>.
12
13
Puma's Environmental Profit and Loss Account for the Year Ended 31 December 2010. N.p.: Puma, n.d. PDF.
PPR. An Expert Review of the Environmental Profit & Loss Account. N.p.: PPR, 14 Dec. 2012. PDF.
4
Puma’s Environmental Profit and Loss Statement
impact was land use at 25% or EUR 37m. Air pollution accounted for 7% (EUR 11m) of the
impact, and the least amount of impact came from waste (2% or EUR 3m). In addition, the
report showed that 57% (EUR 83m) of the impact came from Puma’s Tier 4 suppliers, who
produced the raw materials; Puma’s operations created the least amount of impact relative
to the other members of the supply chain, with a 6% (EUR 8m) impact.
Another way in which Puma calculated the impact was through their different
business lines (footwear, apparel, and accessories). This data showed that the majority of
the environmental impact (66% or EUR 96m) resulted from the production of their
footwear, due to the high water intensity and land use involved in the production of
leather.13 Apparel created the second largest impact of 27% or EUR 39m, and accessories
accounted for 7% of EUR 10m of the total impact.13
Finally, a majority of impact (66% or EUR 96m) comes from the Asia/Pacific region,
as that is where most of their supply chain is based.13 Within this percentage, more than
40% of the impact came from water used in the production of the cotton and fabric that
goes into their products. 60% of Puma’s GHG emissions and air pollution come from this
region as well, as well as almost all of their waste, since most of their factories are located in
this region.13 The next greatest region in terms of impact was the Americas at 24% or EUR
35m, as land use from the production of leather is significant in this area.13 Lastly, Europe,
the Middle East, and Africa accounted for 10% or EUR 14m of the impact.13
Data for the E P&L data was obtained from Puma’s own operations and suppliers,
and modeled data was used to fill in the gaps.13 Data for Puma’s operations and for many
of the first tier suppliers was collected as primary data.13 Of all the data collected, “Actual
data collected represents 30% of total greenhouse gas emissions, 11% of total air pollution
emissions, 1% of total water abstraction quantities and 55% of total waste generation
quantities.”13 The rest of the data for first Tier suppliers and the remaining Tiers was
modeled using Trucost’s econometric input-output (I-O) model.13 The I-O model uses
government census data of products used and produced by different business industries,
and looks that the emissions of different resources.13 Trucost looked at the expenses of Tier
5
Puma’s Environmental Profit and Loss Statement
suppliers, as well as their use of GHGs, water, and waste to estimate the impact of the
supplier’s operations.13
Much of the calculation of the impact data required assumptions. Of the total data,
88% came from models.13 Further assumptions were made since for some of the suppliers,
only national level locations were available, and the data varies based on geographical
location.13 Puma stated, however, that they follow a conservative approach and erred on
the side of the environment.13 PPR, Puma’s parent company (now called Kering) tested the
E P&L methods and determined most of the tactics to be sound, with imprecision due to a
lack of data or the difficulty in trying to assign numerical values to nature.14 In addition,
the work was also examined by a review panel including “experts from the World Business
Council for Sustainable Development, the International Integrated Reporting Council, the
U.N. Environment Programme (UNEP), the World Wildlife Fund, a few universities, The
Economics of Ecosystems and Biodiversity (TEEB), and representatives from two of the
companies that wrote the EP&L statements, Pricewaterhouse Coopers and Trucost” who
gave “approval of the quality of the methods, and confidence that the data produced by
them is solid enough on which to make strategic decisions and estimate future risks.”15
Another application of the E P&L was the Product E P&L which was used to
compare Puma’s suede sneakers to a pair of their biodegradable InCycle sneakers (Exhibit
5).12 Overall, they found that the environmental impacts of the InCycle were one third less
than that of the suede sneaker (€4.29 per pair for the Suede versus €2.95 for the InCycle).
Specifically, the report examined the same five environmental impacts as the general E P&L
did: GHG emissions, water, land use, air pollution, and waste. With regards to GHG
emissions, the InCycle reduced the amount of greenhouse gas released by using organic
cotton and linen as opposed to the leather used in the Suede sneaker. This results in
significant savings, as cattle-rearing produces much more GHG emissions than cotton
farming. In addition, since the InCycle is biodegradable, the GHG emissions are less at the
14
Miller, Hannah. "Will Puma's EP&L Create a New Zeitz-geist?" GreenBiz.com. N.p., 21 Dec. 2012. Web. 17 July 2014.
<http://www.greenbiz.com/news/2012/12/21/will-puma%E2%80%99s-epl-create-new-zeitz-geist>.
6
Puma’s Environmental Profit and Loss Statement
end of the InCycle’s life as opposed to the Suede shoe, which either ends up in a landfill or
incinerated. Overall, the InCycle incurs 35% less environmental costs from GHGs than the
Suede shoe.
For water, the InCycle sneaker was found to use 21% less water than the suede
shoe.12 This was again linked to the use of leather, which requires more water in its
production than cotton. The InCycle cost 20% less for land use because less land is needed
to produce cotton than is needed for cattle rearing. For waste, the InCycle was again better
for the environment, by creating only one third of the waste that the suede shoe generates,
due to the shoe’s biodegradable nature. The only area in which the suede shoe
outperformed the InCycle shoe was in air pollution. The InCycle had a 14% higher cost for
air pollution as converting cotton into fabric is more energy intensive than processing
leather. However, looking at the sum of all of the costs, the negative numbers from air
pollution are offset by the greater savings in the other four areas.
As Puma progresses with its mission to become a sustainability leader, Zeitz still has
more to accomplish. With 85% of the impacts occurs in Tiers 2-4, what change should be
made? What should Puma do to improve the methods used to create the E P&L? Should
an E P&L be conducted for Kering’s other subsidiaries? Should a similar process be
undertaken to examine Puma’s “social” impacts so they could report on the complete triple
bottom line?
7
Puma’s Environmental Profit and Loss Statement
Exhibit 1: Puma’s Clever Little Bag15
15
http://www.smarterinnovation.org/The-method/Case-Puma-clever-little-bag.aspx
8
Puma’s Environmental Profit and Loss Statement
Exhibit 2: Life Cycle Stages and Puma’s Supply Chain16
16
http://about.puma.com/wp-content/themes/aboutPuma_theme/financial-report/pdf/EPL080212final.pdf
9
Puma’s Environmental Profit and Loss Statement
Exhibit 3a: Environmental Impacts Reported in Puma’s E P&L
10
Puma’s Environmental Profit and Loss Statement
Exhibit 3b: Environmental Impact by Indicator, Tier, Business Line, &
Region
11
Puma’s Environmental Profit and Loss Statement
Exhibit 4: Costs Assigned to Environmental Impacts and Comparison to
Financial Data
12
Puma’s Environmental Profit and Loss Statement
Exhibit 5: The In-Cycle Shoe17
17
http://about.puma.com/wp-content/themes/aboutPuma_theme/media/pdf/2012/epl/en/ProductImpacts.pdf
13